Are Charge Cards and Credit Cards the Same Thing?

creditCardsThey look the same, they’re used the same way, most retailers accept both…so credit cards and charge cards must be the same thing, right? Not really. Most people don’t realize that there is a difference between a charge card and a credit card but many consider the two to be one in the same.  A charge card and credit card are not the same, but they do have some things in common.

Charge card

Charge cards can be used to make purchases now and pay later, but when you receive the bill, it is due in full.  You are almost always charged an annual fee, pay no interest and have no set credit limit, but there is an upper boundary of what can be charged (called a “shadow limit”). Charge card examples are some American Express and Diners Club cards. Charge cards are reported on your credit report, but without credit limits, because the limits are not pre-set. Older FICO scores measure them as if they were credit cards, but the newer FICO scores do not.

Credit card

A credit card offers exactly what the name states – credit. Some credit cards charge an annual fee, but most do not.  You don’t have to pay the bill in full in month, you can revolve or pay the minimum, a partial amount, or in full.  If you don’t pay in full, you pay interest on the remaining balance.  There are many credit cards from retailers, banks, and oil companies. There are many examples of credit cards such as MasterCard, Visa, and Discover Card. Some of the familiar retail cards are Sears, Home Depot and Walmart.

There are some similarities between the two cards.  You can charge now and pay later and both help you build credit, because they report to the credit bureaus.


The differences are that you must pay a charge card in full each  month, there is an annual fee, they don’t report your credit limit, and are not accepted at all businesses.  Since there is not real defined limit, this can hurt your credit because the most you have ever charged becomes your credit limit. Using 15 percent or more of your available credit hurts your credit.  For example, if the most you have charged was $500 and the amount you charged this month is $300, you have used 60% of your credit, even though your unstated limit may be $5,000.

Also, read >  7 Reasons to Consider a Business Credit Card

Credit cards are accepted at most businesses and don’t require you to pay in full, but if you carry a balance, you pay interest on the balance.  You can get yourself in debt easily, if you don’t pay it off each month, and you continue to charge on it.

You need to evaluate each type of card and determine which one is the best for you.   You can also have both types of cards.

JRU on 60 Mins SetCredit Reporting Expert, John Ulzheimer, is the President of Consumer Education at, the credit blogger for, founder of and a Contributor for the National Foundation for Credit Counseling.  He is an expert on credit reporting, credit scoring and identity theft. Formerly of FICO, Equifax and, John is the only recognized credit expert who actually comes from the credit industry.  You can follow John on Twitter here.